CIBC economists question BoC’s view of housing market

The slowdown in Canada’s housing market is likely to weigh on the economy according to a new report from CIBC Economics.

With interest rates and other policies already having a noticeable impact on the housing market, especially in the hottest cities, “the sun has officially set on the days of heady housing market growth fueling Canada’s national economy” say economists Benjamin Tal and Royce Mendes.

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This comes as the housing market is more important to the Canadian economy than ever, the economists highlight, and they say that the Bank of Canada’s argument that markets are stabilizing is “difficult to agree” with.

They say that the BoC’s workhorse model states that it takes six quarters for the full impact of interest rate rises to be seen in the housing market, but market indicators are already allowing five quarters from the first hike of this cycle.

Tal and Mendes note that longer term, the tighter mortgage lending restrictions will lead to safer mortgage and stable housing markets, but for not much of the mortgage stock is from before standards tightened.

Vancouver, Toronto
The report says that the market-rise in Vancouver in 2015/16 was an unusual period, with speculation playing a significant part. Coupled with a natural easing in the market, together with policy changes, and interest rates, the market is now seeing an undoing of the gains from that period.

In Toronto, things are better than Vancouver, but Tal and Mendes believe the condo sector in particular will soften in 2019.

Despite their call for a slowing of activity which will weigh on GDP, the duo expects prices to find their equilibrium in 2019.

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